Fairfax 2024

[mananainvesting]

What are the likely scenarios on FFH closing the TRS? Would they have to pay the financial institutions to close the position? Can Fairfax buy the shares underlying the TRS? 

[nwoodman]

2 hours ago, mananainvesting said:

What are the likely scenarios on FFH closing the TRS? Would they have to pay the financial institutions to close the position? Can Fairfax buy the shares underlying the TRS? 

1. Forced index buying is my bet

2. No, just not renew. However, when the contract closes, unless the bank wants to keep the position, they will sell it into the market. Unless there is an additional source of demand, this could put downward pressure on the share price, so in the month the contract ends, this could be quite costly to Fairfax. There is also the real possibility that a lot of investors are using the TRS as a proxy on IV and may choose to exit as well. Leverage works both ways. I would see this as a short term blip, but the market can react in pretty funky ways at time

3. Yes, but remember that this could be seen as a significant funding source for the buybacks to date. 

[Hoodlum]

51 minutes ago, nwoodman said:

1. Forced index buying is my bet

2. No, just not renew. However, when the contract closes, unless the bank wants to keep the position, they will sell it into the market. Unless there is an additional source of demand, this could put downward pressure on the share price, so in the month the contract ends, this could be quite costly to Fairfax. There is also the real possibility that a lot of investors are using the TRS as a proxy on IV and may choose to exit as well. Leverage works both ways. I would see this as a short term blip, but the market can react in pretty funky ways at time

3. Yes, but remember that this could be seen as a significant funding source for the buybacks to date. 

 

In the event of Fairfax being added to the index, I wonder if the bank will keep many of the share for their own index or mutual funds.

[nwoodman]

3 hours ago, Hoodlum said:

 

In the event of Fairfax being added to the index, I wonder if the bank will keep many of the share for their own index or mutual funds.

Inventory trading may well be a consideration,  it would take some of the pressure off.  You just know that Fairfax will have some angle that will be enlightening 

[SafetyinNumbers]

13 hours ago, mananainvesting said:

What are the likely scenarios on FFH closing the TRS? Would they have to pay the financial institutions to close the position? Can Fairfax buy the shares underlying the TRS? 

1. When they have the cash to buyback the shares. My guess is when they sell some Digit. Likely years away.

 

2. They don’t have to but it’s nice to be able to buyback shares at market without paying a premium.

 

3. No reason why not.

 

Many investors are afraid of a decline in earnings from the TRS in a given quarter but from a liquidity perspective it’s a pretty low risk. The stock would have to fall more than $500/sh to approach how much FFH makes in an average quarter. It’s a risk they can easily handle. 

[villainx]

On 11/7/2024 at 8:00 AM, SafetyinNumbers said:

Thanks @mananainvesting and @Viking! Viking I’m looking forward to what you come up with. I find your analysis extremely helpful!

 

@Haryana I think that makes sense on the performance fees but it’s hard to believe the discount closes entirely except if investors really want to own BIAL post IPO. 

 

You have a great podcast voice too.

 

[SafetyinNumbers]

16 minutes ago, villainx said:

 

You have a great podcast voice too.

 

Thanks for listening! Best feedback so far

[sfbm21]

5 minutes ago, SafetyinNumbers said:

Thanks for listening! Best feedback so far

Agree .learned some. Best podcast voice.

[PJM]

Sorry to digress from the topic, does anyone know the tentative dates of Fairfax annual meeting in 2025 and related events. No announcement available on the website. Thanks

[SafetyinNumbers]

1 hour ago, PJM said:

Sorry to digress from the topic, does anyone know the tentative dates of Fairfax annual meeting in 2025 and related events. No announcement available on the website. Thanks

The Ben Graham Value Investing Conference (featuring Adam Waterous from Strathcona) is on April 8 so fair to assume Fairfax India AGM is on the 9th and Fairfax AGM is on the 10th.

 

https://www.ivey.uwo.ca/bengrahaminvesting/bgcvi-events/2025/04/2025-value-investing-conference/?utm_source=google&utm_medium=cpc&utm_term=&adpos=&gad_source=1&gbraid=0AAAAADvlxZdoVkuwEueSz6nVuNiFwIFLA&gclid=Cj0KCQiAlsy5BhDeARIsABRc6Zumbx_bDO6NwxclCd6RjwJ3HpXy-2KvnoA8_CZtX8dn3cq6AQTg6AUaAiEAEALw_wcB

[Dinar]

Renaissance Re on its conference call on November 7th: strong markets and rates are here to stay.

[gfp]

21 minutes ago, Dinar said:

Renaissance Re on its conference call on November 7th: strong markets and rates are here to stay.

 

That's impressive they know the future.  Super valuable skill to have

[Hoodlum]

1 hour ago, Dinar said:

Renaissance Re on its conference call on November 7th: strong markets and rates are here to stay.

 

It will be interesting to see if that position changes during the next 6 months.

[LC]

3 hours ago, Hoodlum said:

It will be interesting to see if that position changes during the next 6 months.

 

What makes you think the market is finally softening? 

[Munger_Disciple]

3 hours ago, gfp said:

 

That's impressive they know the future.  Super valuable skill to have

 

[Hoodlum]

1 hour ago, LC said:

 

What makes you think the market is finally softening? 

 

I just don't think we fully understand where the market may go throughout next year.  We just need to wait and see.

[LC]

Fair enough, I thought you may have worked in the industry and were seeing some early indicators.

[Dinar]

Here is an interesting anecdote.  I have an investment in a company that owns several dozen apartment buildings in and around Boston.  Their insurance expense went up 30% - 5% due to a rate increase and 25% due to higher insured value of buildings.  The higher insured value drives demand for more insurance, and hence in this example, the insurance industry has to set aside 25% more capital to insure these guys.  So if this is replicated across the industry, then this could keep upward pressure on rates.  

On the supply side, according to Renaissance, they have not seen additional capital enter.  Meanwhile, ACGL just announced a 5% special dividend.  So it seems the industry is staying discipled.  By the way, Tom Gayner of Markel bought around $200k worth of Markel stock in the past two weeks - another insider who is bullish.  Everest (EG) just saw a director buy USD 1MM worth of stock.  

So industry insiders are bullish, time will tell whether they are correct or not.  

[SafetyinNumbers]

1 hour ago, Hoodlum said:

 

I just don't think we fully understand where the market may go throughout next year.  We just need to wait and see.

 

I'm not sure it matters much for near term ROE but it could impact capital allocation decisions.

 

If the market hardens then Fairfax might slow buybacks especially if the P/B multiple is expanding. If the market is softening then Fairfax might have more cash for buybacks or to buy in the minority interests. This year they slowed premium growth to buyback stock. I think strategically to get ahead of the 60 add.

 

 

[UK]

5 hours ago, Dinar said:

Here is an interesting anecdote.  I have an investment in a company that owns several dozen apartment buildings in and around Boston.  Their insurance expense went up 30% - 5% due to a rate increase and 25% due to higher insured value of buildings.  The higher insured value drives demand for more insurance, and hence in this example, the insurance industry has to set aside 25% more capital to insure these guys.  So if this is replicated across the industry, then this could keep upward pressure on rates.  

On the supply side, according to Renaissance, they have not seen additional capital enter.  Meanwhile, ACGL just announced a 5% special dividend.  So it seems the industry is staying discipled.  By the way, Tom Gayner of Markel bought around $200k worth of Markel stock in the past two weeks - another insider who is bullish.  Everest (EG) just saw a director buy USD 1MM worth of stock.  

So industry insiders are bullish, time will tell whether they are correct or not.  

 

And I would add, that despite all the mistery of Buffett selling stocks off and going to cash, insurance I think was was the only noticible thing he added to in the last year or so.

[Haryana]

On 11/11/2024 at 4:16 AM, SafetyinNumbers said:

1. When they have the cash to buyback the shares. My guess is when they sell some Digit. Likely years away.

...

Why do you think they will sell some Digit which is part of their global insurance as they never like to sell any of them unless they are forced by the regulation or reach upper limit?

[SafetyinNumbers]

3 hours ago, Haryana said:

Why do you think they will sell some Digit which is part of their global insurance as they never like to sell any of them unless they are forced by the regulation or reach upper limit?

I’m not sure it’s core. 

[giulio]

I am of the opposite view. Given how hard they worked to set it up, the difficult regulatory environment and their long term view of India, I believe they will hold on to shares for a long time.

They might sell some if valuation gets truly outrageous but they'll keep a majority.

Possibly they will increase their stake if allowed to.

 

Best,

G

[SafetyinNumbers]

19 minutes ago, giulio said:

I am of the opposite view. Given how hard they worked to set it up, the difficult regulatory environment and their long term view of India, I believe they will hold on to shares for a long time.

They might sell some if valuation gets truly outrageous but they'll keep a majority.

Possibly they will increase their stake if allowed to.

 

Best,

G

I think they will also hold Digit for a long time. I also think they will hold the TRS for a long time.

[TwoCitiesCapital]

28 minutes ago, giulio said:

I am of the opposite view. Given how hard they worked to set it up, the difficult regulatory environment and their long term view of India, I believe they will hold on to shares for a long time.

They might sell some if valuation gets truly outrageous but they'll keep a majority.

Possibly they will increase their stake if allowed to.

 

Best,

G

 

My hope would be similar to my hope for Exor and their Ferrari position. I don't necessarily want Exor to sell Ferrari when Ferrari's valuation is stupidly high. I want Exor to exert its majority control to compel Ferrari to issue shares/capital at those levels.

 

It's not as clean as a share sale and probably doesn't lock in as much of the upside, but it avoids taxes, maintains a control position (assuming you don't get diluted too much), and puts in a higher-floor for the Ferrari shares while giving them balance sheet flexibility. 

 

I would hope the same for Fairfax/Digit until the market is more mature.